US Virginia proposal sales tax digital services

Virginia’s latest attempt to impose its sales tax on digital services

Virginia Delegate Vivian Watts has put forward new legislation to introduce 4.3% sales tax on digital services (often termed digital goods in the US).

The proposal to introduce a sales and use tax on digital goods and services in Virginia reflects a broader trend of states adapting their tax codes to the digital economy.

Digital goods exemption

• Digital products delivered electronically, such as software, downloaded music, ringtones, and e-books, are currently exempt from Virginia’s sales and use tax.
• This has been the case historically in Virginia, aligning with a more traditional tax framework focused on tangible goods.

Proposal to follow other states

The pre-filled legislation introduced legislation to extends sales and use tax to include services such as:

• • • Software application services
    • Computer-related services
    • Website hosting and design
    • Data storage
    • Digital subscription services.

In the 2024 budget, there was a similar proposal which targeted:

1. • • Digital audio and audiovisual products (e.g., music, movies, podcasts).
     • Reading materials (e.g., e-books, digital magazines).
     • Software (e.g., apps, operating systems).
     • Streaming services (e.g., Netflix, Spotify).
     • Other data or applications.

Virginia’s move reflects a growing recognition among states that digital services are a significant and growing part of the economy. Other states, such as Maryland, have recently introduced taxes on digital advertising, highlighting a trend toward addressing the tax gap in the digital economy.

US Sales Tax rates and selling thresholds